Shares of hotel brands plunged again on Monday as the COVID-19 reaction has started shutting down travel across the world. Marriott International's (NASDAQ:MAR) shares were down as much as 18.3% in early trading, Hyatt Hotels (NYSE:H) dropped 20.1%, and Hilton Worldwide Holdings (NYSE:HLT) shares were down 18.8%. Shares of each company recovered some of those losses throughout the day and at 2:40 p.m. EDT were down 7.4%, 9.6%, and 10.7% respectively.
There are multiple layers to the news today, but the EU has proposed a ban on non-essential travel to Europe, the U.S. is already limiting travel from Europe, and airlines are cutting capacity to keep from flying empty airplanes. Hotels are downstream from the airline industry, but if people aren't traveling they aren't staying at hotels, so there is going to be a big impact on hotel brands.
Most hotels in the Marriott, Hyatt, and Hilton chains aren't actually owned by these brands, so there isn't a mass shutdown of properties yet. But there are closings across the U.S. and the world when cities go into shutdown or employees test positive for COVID-19. So business is coming to a halt in some places and slowing dramatically in others.
What we don't know is when any sort of recovery to normal will begin, but the first quarter of 2020 will be extremely rough for hotel companies. And that realization seems to be hitting the market today.
The good news for hotel brands is that their businesses are typically asset-light compared to the actual hotel owners. Then they take a fee for services they provide to the hotel operators themselves. So operations are going to suffer as bookings decline, but the hope is that brands are spared from some of the fixed costs the operator has.
While the next few months will be weak, I don't think there will be a huge decline in demand if we look out 6-12 months, unless there's a global recession from this pandemic. That's possible, but if business returns to usual we'll see hotels fill up again.
I think that now is the time to start buying the discounted hotel brands while their stocks are trading for nearly half of what they were at their 52-week high. The hotel business will return again eventually, and when it does these stocks may look like a steal in hindsight.